CfD Tariff Scheme in Japan? Fukushima reveals the real cost of nuclear power

Courtesy: Japan Times

Public opinion in Japan is split down the middle over whether the government should permit power companies to restart idled nuclear power plants.

At issue is which should be given priority — plant safety or economic efficiency.

Since new safety standards were introduced following the disaster at Tokyo Electric Power Co.’s Fukushima No. 1 nuclear plant triggered by the March 2011 earthquake and tsunami, the Sendai nuclear power plant in Kagoshima Prefecture of Kyushu Electric Power Co. has become the first of 13 nuclear power plants nationwide undergoing screening by the Nuclear Regulation Authority to get the go-ahead for restart after consent was given by Gov. Yuichiro Ito on Nov. 7.

Ito told reporters that the restart is unavoidable in view of prevailing circumstances. Without doubt, one of those circumstances is the fees that consumers have to pay for electricity.

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Indeed, after learning of Ito’s decision, one government official expressed his hope that the restart of the Sendai plant will serve to reduce reliance on costly thermal power generation and put an end to a series of rate hikes adopted by power companies in the aftermath of the stoppage of their nuclear power plants.

But will things turn out that way?

Recently a fact has surfaced that contradicts the myth of low power generating costs by nuclear power. More surprisingly, the fact originated from the power industry itself.

At a press conference in September, Makoto Yagi, chairman of the Federation of Electric Power Companies of Japan (FEPC), who also heads Kansai Electric Power Co., said that in order for private corporations to be able to operate nuclear power plants, it is essential that all costs are recovered without fail. For that purpose, he added, his industry would like to seek assistance from the public sector.

The FEPC is particularly anxious for introduction of the “Contract for Difference” (CfD) scheme. The CfD system has already been introduced in Britain. It is similar to the feed-in tariffs (FIT) scheme in Japan under which power companies are required to purchase electricity generated by renewable energy sources at fixed prices.

But there is a difference between the FIT scheme and the CfD scheme. Under the CfD system for nuclear power, the standard price of electricity would be determined by taking into consideration not only the normal cost of power generation but also the future costs of disposing of spent nuclear fuel and decommissioning reactors.

The difference between the actual power rates and this standard price would be collected from consumers and diverted to the utilities.

An official of the Ministry of Economics, Trade and Industry says this system is fair because in the event of the standard price becoming lower than the actual power rates, the utilities would pay the difference to consumers.

Until now, both the power industry and the government have been emphasizing the “low costs” of generating electricity with nuclear power.

If what they have been saying is true, theoretically consumers should be able to expect that their electricity bills, which have gone up after thermal power generation assumed greater proportions, to come down with the restart of nuclear power stations, whose costs for power generation have been touted as low. But a surprising fact has come to the fore.

It’s the news that the standard CfD price envisaged for the Hinkley Point nuclear power plant in England, being expanded by Electricite de France, a French utility company, for completion in 2023, would be equivalent to ¥15.7 per kilowatt-hour, which would lead to doubling the prevailing power rate.

According to a journalist specializing in the power industry, that price is ¥0.4 higher than the price at which Japanese power companies are required to purchase electricity generated by wind power under the current FIT scheme, and only ¥1 cheaper than the FIT price for electricity from solar power generation. Moreover, he says, the standard price for the Hinkley Point plant is guaranteed for 35 years, which is longer than the period set for purchase of power generated by renewable energy sources. This means that the financial burden on consumers will become greater.

Even business circles in Japan, which have longed for an expansion of nuclear power generation, are opposed to the introduction of the CfD scheme. A high-ranking official of a major manufacturing company has said that restarting nuclear power plants will have no merit if it leads to higher electricity prices, and that if the CfD system is adopted his company will have no choice but to drastically increase power generation on its own.

In a statement issued in May 2014, Japan’s three major business organizations — the Japan Business Federation, the Japan Chamber of Commerce and Industry, and the Japan Association of Corporate Executives — said restarting nuclear power plants should be accelerated because the incremental fuel cost burdens resulting from reliance on thermal power instead of nuclear power had already reached ¥3.6 trillion annually.

At the same time, however, the three bodies called for a thorough review of the FIT system under which utilities have to buy power generated by renewable energy sources at fixed prices. The scheme had brought the total amount of money paid by the utilities to about ¥650 billion during the third year of the system’s implementation.

They also warned that the burdens on ordinary citizens would continue to rise rapidly and the heavy burden would stay for a long period of time.

A research fellow at a think tank well versed in energy issues says that if the CfD formula is applied to existing nuclear power plants, the annual payout by the power companies will exceed ¥3 trillion, which is about the same as the current incremental costs arising from the use of alternative fuels.

If that happens, he says, the utilities won’t have to lower power rates for consumers after restarting nuclear stations and will have a good excuse for maintaining the present high electricity rates.

Should this be the case, the restart of nuclear power plants will not lead to lowering of the power rates as ardently hoped for by business circles, and this in turn will create a major conflict among them as to whether those power plants should be retained.

The new development means that the FEPC has virtually admitted that it is extremely costly to run nuclear power plants if the expenses needed for disposal of spent nuclear fuel and decommissioning of reactors are taken into account; therefore, the power rates should be set higher.

The think tank researcher says, “We are beginning to see the true costs of nuclear power generation.”

The aforementioned executive of the manufacturing firm accuses the utilities of claiming at first that nuclear power generation will ensure an inexpensive and stable supply of electricity but then reversing the position by admitting that costs turned out to be much higher.

A high-ranking official of an electric power company counters that the utilities have supplied power inexpensively based on a tacit understanding that the costs of decommissioning reactors would be borne by the government and that, therefore, it is utterly unreasonable now to be told to bear such costs on their own by setting aside large sums of money as reserves.

Behind this statement is a history of the government taking the initiative in building nuclear power plants from the national security point of view — making sure that Japan can meet its own energy needs and asserting implicitly that it could produce nuclear weapons.

The utility executive has confided that even though his company insisted it had such a large capacity that it would not need nuclear power plants, it was forced by the government to build them in line with the national policy.

Power companies have become increasingly distrustful of the government after Tepco was placed under state control and given additional responsibilities, including shouldering more than ¥1 trillion in costs for decommissioning reactors in the aftermath of the Fukushima nuclear disaster. They fear that they might someday face the same fate.

A business magazine editor who is well informed about FEPC says that if a utility is to bear the costs of reactor decommissioning and spent fuel disposal, the money necessary for those purposes will have to come from the CfD scheme. The federation is of the view that, absent such an arrangement, nuclear power plants would lead to power companies’ bankruptcy, according to the editor.

Whether decommissioning is financed by the government with taxpayer money or by higher power rates under the CfD system, the ultimate burden would fall on ordinary citizens.

It is no longer a choice between safety and economic efficiency of nuclear power plants. It is clearly unreasonable to rely on nuclear power generation that the utilities themselves have admitted is low in both safety and economic efficiency.

It is high time that all citizens overcame the emotional confrontation between the proponents and opponents of nuclear power generation and faced the reality.

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